Module 6 Flashcards
Regional _____ integration creates agreements among countries in a specific geographic area in order to reduce and eventually remove tariff and nontariff barriers to the free flow of goods.
Multiple choice question.
social
economic
financial
political
economic
What are three forms of economic integration?
Multiple select question.
Planned economy
Free trade area
Common market
Military alliance
Full political union
Free trade area
Common market
Full political union
Economic theories advocate for
________________________
trade and investment that will allow participating countries to gain economically. (Choose free or restricted.)
free
Which two political factors support the idea for economic integration of nations through trade?
Multiple select question.
It promotes independent political power.
Interdependency among nations decreases the potential for violent conflict.
It can enhance the political weight of those countries in the world.
It provides an incentive to use military action to achieve objectives.
Interdependency among nations decreases the potential for violent conflict.
It can enhance the political weight of those countries in the world.
What are two impediments to establishing economic integration?
Multiple select question.
Global benefits of free trade
Potential to increase violent conflict
Costs of integration
Concerns over national sovereignty
Costs of integration
Concerns over national sovereignty
There has been a(n) _____ in regional economic integration in the past two decades.
Multiple choice question.
decline
pause
increase
increase
An argument against regional free trade agreements contends that the benefits have been oversold, but ______ have often been ignored.
Multiple choice question.
costs
monetary policy
values
behaviors
costs
What is the least integrated form of economic integration?
Multiple choice question.
Customs union
Free trade area
Common market
Economic union
Free trade area
Because of its economic and political influence, the _____ is considered the most significant trading bloc in Europe.
Multiple choice question.
European Parliament
European Union
European Council
European Free Trade Association
European Union
Based on economic theories, free trade is viewed as a ______ as all participating nations stand to gain.
Multiple choice question.
zero-sum game
negative-sum game
positive-sum game
positive-sum game
One of the reasons the European Union was originally formed was because
Multiple choice question.
Europeans desired a lasting peace after enduring two devastating world wars.
Europeans believe that common environmental standards were needed to prevent degradation of Europe’s rivers.
the countries of Western Europe were trying to prevent excessive immigration from the communist-controlled countries of Eastern Europe.
the dominant political ideology of the countries of Western European tended toward radical Marxism at that time.
Europeans desired a lasting peace after enduring two devastating world wars.
One political reason for economic integration is the potential to minimize violent conflict between nations.
True false question.
True
False
True
What are the four main institutions responsible for determining economic policy in the EU?
Multiple select question.
European Commission
United Nations
Court of Justice
House of Lords
G20
Council of the European Union
European Parliament
European Commission
Court of Justice
Council of the European Union
European Parliament
A key impediment to economic integration is that although a majority of citizens may benefit from free trade, certain groups may lose their jobs to low-cost and low-skilled labor in other countries as was the experience of some U.S. and Canadian workers in the ______ industry following the establishment of NAFTA.
Multiple choice question.
textile
software development
banking
chemical engineering
textile
The Single European Act abolished restrictions on cabotage, which is the
Multiple choice question.
the right of an industry to sell its products at a lower cost in some markets and at a higher cost in others.
ability to use someone else’s work even though it is protected by copyright.
illegal dumping of toxic environmental waste.
right of foreign truckers to pick up and deliver goods within another member state’s borders.
right of foreign truckers to pick up and deliver goods within another member state’s borders.
Some economists argue that regional free trade agreements will provide global benefits only if
Multiple choice question.
it becomes easier to customize products.
trade creation exceeds trade diversion.
there is a homogenization of consumer tastes.
tariff barriers are removed.
trade creation exceeds trade diversion.
What committed EU members to adopt a common currency by January 1, 1999?
Multiple choice question.
Maastricht Treaty
Sullivan principles
Treaty of Lisbon
Court of Justice
Maastricht Treaty
Which two groups represent major trading blocks in Europe?
Multiple select question.
European Free Trade Association
European Union
European Commission
European Parliament
European Free Trade Association
European Union
What two political factors led to the development of the European Union?
Multiple select question.
Europe’s desire to assist its former colonies.
The devastation of western Europe during the two world wars.
Europe’s desire to hold its own on the world’s political and economic stage.
Europe’s need for a common language and culture.
The devastation of western Europe during the two world wars.
Europe’s desire to hold its own on the world’s political and economic stage
Before the United Kingdom decided to exit the EU, how many total countries were involved by 2014?
Multiple choice question.
15
28
112
43
28
The political structure responsible for economic policies in the EU consists of a single office known as the Court of Justice.
True false question.
True
False
False
After the British government formally notified of its intent to exit the European Union, the country had _____ to negotiate the terms of the exit.
Multiple choice question.
two years
six months
30 days
ten years
two years
Based on the objectives of the Single European Act, the principle of _____ states that a product standard developed in one EC country should be accepted in another.
Multiple choice question.
antidumping
mercantilism
mutual recognition
factor endowments
mutual recognition
______ is considered the most successful attempt at regional economic integration.
Multiple choice question.
ASEAN
The EU
CARICOM
NAFTA
The EU
The Maastricht Treaty committed EU members to
Multiple choice question.
assess similar tariffs on agricultural products to non-members.
enforce quotas on hormone-treated beef imports.
harmonize economic policies on overseas investment.
adopt a common currency by January 1, 1999.
adopt a common currency by January 1, 1999.
What three countries made up NAFTA?
Multiple select question.
Panama
Mexico
Canada
United States
China
Mexico
Canada
United States
Because of its economic and political influence, the _____ is considered the most significant trading bloc in Europe.
Multiple choice question.
European Parliament
European Free Trade Association
European Council
European Union
European Union
The United States-Mexico-Canada Agreement renegotiated NAFTA and requires automakers to produce Blank______ of a vehicle’s content in North America to qualify for zero tariffs.
Multiple choice question.
42.5 percent
75 percent
20.5 percent
100 percent
75 percent
What are two requirements countries must take to qualify for EU membership?
Multiple select question.
Stop deregulation of markets
Respect human rights
Increase inflation rates
Establish stable democratic government
Respect human rights
Establish stable democratic government
In 1969, which countries created the Andean Pact that was modeled on the EU, but was not as successful in achieving regional groups objectives?
Multiple choice question.
Bolivia, Chile, Colombia, Ecuador, Peru
Bolivia, Brazil, Colombia, Peru, Venezuela
Argentina, Chile, Colombia, Peru, Venezuela
Argentina, Brazil, Guyana, Paraguay, Uruguay
Bolivia, Chile, Colombia, Ecuador, Peru
During the campaign for leaving the EU, one of the recent claims said that leaving the EU would allow the British to take back control of _____.
Multiple choice question.
arbitrage
big business
religious affiliation
immigration
immigration
The trade pact developed in 1988, initially between Argentina and Brazil, is called ______.
Multiple choice question.
Mercosur
NAFTA
CAR-COM
ASEAN
Mercosur
Which agreement was an attempt at regional economic integration in the United States?
Multiple choice question.
North Atlantic Treaty Organization
Mercosur
North American Free Trade Agreement
Andean Community
North American Free Trade Agreement
Costa Rica, El Salvador, Guatemala, and other countries formed a common market in the early 1960s that was called
Multiple choice question.
Mercosur.
the Andean Community.
the Central American Common Market.
the Mayan Common Market.
the Central American Common Market.
The goal of NAFTA was to
Multiple choice question.
eliminate tariffs on trade between the nations.
eliminate monopolies in the service industry.
foster greater trade between North America and China.
establish a universal taxing body between the nations.
eliminate tariffs on trade between the nations.
Which three nations are a part of ASEAN?
Multiple select question.
Argentina
Mexico
Singapore
Brazil
Philippines
Indonesia
Singapore
Philippines
Indonesia
Which industry is most affected by stipulations of USMCA?
Multiple choice question.
Education
Oil
Automobile
Healthcare
Automobile
There are presently 19 trade blocs in Africa, and many of these blocs have been _____ for years.
Multiple choice question.
contentious
dormant
enforced
active
dormant
Under the Andean Pact, which two members received special concessions based on the size of these countries?
Multiple select question.
Bolivia
Chile
Peru
Ecuador
Colombia
Bolivia
Ecuador
The creation of a single market creates _____ costs of doing business.
Multiple choice question.
lower
higher
lower
Mercosur is a free trade pact started in 1988 by which two South American economies?
Multiple select question.
Colombia
Brazil
Peru
Argentina
Brazil
Argentina
The collapse of the Central American Common Market was a result of ______.
Multiple choice question.
the introduction of a common currency
the introduction of antidumping regulations
the acceptance of Mexico into NAFTA
war between Honduras and El Salvador
war between Honduras and El Salvador
The Association of Southeast Asian Nations was formed with the intent to foster _____.
Multiple choice question.
government involvement
local production
free trade
equalized tariffs
free trade
African countries have attempted to form a continental trade agreement, but have been stymied by significant ______ turmoil.
Multiple choice question.
social
technology
economic
political
political
The adverse consequences of unpredictable changes in exchange rates are called foreign exchange __________________
. (Enter one word in the blank.)
risks
An American tourist in Japan is interested in buying a souvenir that costs 1800 yen. How much is this in dollars if the exchange rate is $1 to Y400.
Multiple choice question.
$3.00
$45.00
$4.50
$14.50
$4.50
A(n) ______ exchange rate is the price to exchange one currency for another for immediate delivery.
Multiple choice question.
parity
spot
forward
fixed
spot
The most important foreign exchange trading center is ______ with 43 percent of the activity.
Multiple choice question.
Singapore
New York
London
Tokyo
London
Jameson Electric Corp. would use the foreign exchange market when it needs to
Multiple choice question.
advertise internationally.
convert currency.
translate written materials.
customize products.
convert currency.
At the simplest of levels, exchange rates are determined by _____.
Multiple choice question.
gross national income levels in the United States
the supply and demand of currencies
the leverage of the dollar
interest rate levels in participating countries
the supply and demand of currencies
What are the two main functions of the foreign exchange market?
Multiple select question.
Currency conversion
Advance mass customization
Eliminate double taxation
Provide insurance against foreign exchange risk
Currency conversion
Provide insurance against foreign exchange risk
The law of ______ is the economic theory that the price of a given security, asset, or commodity must have the same price when exchange rates are taken into consideration.
Multiple choice question.
competitive markets
one price
rate differences
dual prices
one price
If the exchange rate is 1 British pound to $1.35, an American in London will need ______ to purchase a purse priced at 20 pounds.
Multiple choice question.
$3.50
$27
$35
$13.50
$27
By comparing the prices of identical products in different currencies, it would be possible to determine the _____ exchange rate that would exist if markets were efficient.
Multiple choice question.
variable export restraint
purchasing power parity
spot
forward
purchasing power parity
The value of a currency is determined by the ______ of that currency relative to other currencies.
Multiple choice question.
future value
transaction costs
FDI
demand and supply
demand and supply
The Economist magazine version of the PPP uses ______ as a proxy for a “basket of goods.”
Multiple choice question.
coffee
the Big Mac
rice
a bunch of grapes
the Big Mac
The five most important foreign exchange trading centers in terms of level of activity are
Multiple choice question.
London, New York, Paris, Hong Kong, and Beijing.
Paris, Berlin, New York, Shanghai, and Mumbai.
London, New York, Zurich, Tokyo, and Hong Kong.
Dublin, Chicago, Moscow, Tokyo, and Sydney.
London, New York, Zurich, Tokyo, and Hong Kong.
PPP theory predicts that changes in relative prices will result in
Multiple choice question.
decreased GNI.
a recession.
a change in exchange rates.
correct
decreased interest rates.
a change in exchange rates.
If the demand for the yen outstrips its availability and if the supply of the dollar outweighs the demand, the yen will _________________________ against the dollar. (Choose between appreciate or depreciate.)
appreciate
The Fisher effect equates the nominal interest rate as
Multiple choice question.
the required real interest rate - expected rate of inflation.
the required real interest rate x (1 - the marginal tax rate).
the required real interest rate x (1 - the marginal inflation rate).
the required real interest rate + expected rate of inflation.
the required real interest rate + expected rate of inflation.
According to _____, identical products sold in different countries must sell for the same price in competitive markets when their price is expressed in terms of the same currency.
Multiple choice question.
purchasing power parity
the law of one price
spot exchange rates
antidumping policies
the law of one price
One main reason why the IFE is NOT good at explaining short-term exchange rate movements is the impact of ______ in determining the expectations of market traders.
Multiple choice question.
personal income
regulations
investor psychology
environmental conditions
investor psychology
In a(n) _____, there are no trade barriers to prevent the free flow of goods and services.
Multiple choice question.
efficient market
planned economy
common market
customs union
efficient market
What are three moderately decent predictors of long-term changes in exchange rates?
Multiple select question.
Nominal interest rate differentials
Relative inflation rates
Real unemployment rate
Predictive birth rate
Relative monetary growth
Nominal interest rate differentials
Relative inflation rates
Relative monetary growth
If a basket of goods costs $400 in the United States and 40,000 yen in Japan, PPP theory predicts that the dollar/yen exchange rate should be
Multiple choice question.
$.10 per Japanese yen.
$1.00 per Japanese yen.
$.01 per Japanese yen.
$10 per Japanese yen.
$.01 per Japanese yen.
What are the two schools of thought regarding the prediction of future exchange rates?
Multiple select question.
Inefficient market school
Efficient market school
Exchange rate risk school
Exchange rate forecasting school
Inefficient market school
Efficient market school
Theoretically, a country in which price inflation is running wild should expect to see its currency Blank______ against that of countries in which inflation rates are lower.
Multiple choice question.
appreciate
remain neutral
depreciate
stay the same
depreciate
A(n) ______ is based on the theory that prices don’t reveal all available information and more is needed to predict future spot exchange rates.
Multiple choice question.
efficient market
customs union
inefficient market
economic union
inefficient market
The Fisher effect predicts that there is a strong relationship between ______ and interest rates.
Multiple choice question.
government intervention
inflation rates
supply and demand
greenfield ventures
inflation rates
The method of forecasting that draws on economic theory to construct sophisticated models is called the ______ approach.
Multiple choice question.
political
social
technical
fundamental
fundamental
Empirical evidence suggests that the International Fisher effect does NOT explain short-term exchange rate movements well.
True false question.
True
False
True
The impact of psychological factors and investor expectations makes it difficult for exchange rate theories to predict ______ changes in exchange rates.
Multiple choice question.
stabilized
inefficient
long-term
short-term
short-term
Some countries’ governments do not put any limits on the purchase of foreign currency for residents and nonresidents. These country’s have a _____ currency.
Multiple choice question.
freely convertible
externally convertible
inconvertible
nonconvertible
freely convertible
Which school of thought on exchange rate forecasting does NOT believe that forward exchange rates are the best predictors of future spot exchange rates?
Multiple choice question.
Efficient
Inefficient
Inefficient
________ exposure is the risk, faced by companies involved in international trade, that currency exchange rates will change after the companies have already entered into financial obligations. Such exposure to fluctuating exchange rates can lead to major losses for firms.
Multiple choice question.
Economic
Translation
Transaction
Financial
Transaction
The ______ market school believes that forward exchange rates are NOT the best predictors of future spot exchange rates.
Multiple choice question.
inefficient
efficient
inefficient
A tactic that reduces translation and transaction exposure is
Multiple choice question.
investing in government bonds.
using nonconvertible currencies.
creating enough supply to meet demand.
entering into forward exchange rate contracts.
entering into forward exchange rate contracts.
Which approach to forecasting draws on economic theory to develop models that predict exchange rate movements?
Multiple choice question.
Applied
Technical
Fundamental
Theoretical
Fundamental
What is the key way a company can reduce economic exposure?
Multiple choice question.
Maintain several production facilities in one country
Distribute production facilities and assets to various locations
Request government intervention in trade barriers
Limit FDI to licensing and franchising agreements
Distribute production facilities and assets to various locations
One main reason why the IFE is NOT good at explaining short-term exchange rate movements is the impact of ______ in determining the expectations of market traders.
Multiple choice question.
investor psychology
personal income
environmental conditions
regulations
investor psychology
To protect resources efficiently and ensure that each subunit adopts the correct mix of tactics and strategies, firms should aim for _______________________ control of exposure. (Choose centralized or decentralized.)
centralized or central
When a country allows both residents and nonresidents to purchase unlimited amounts of a foreign currency, the country’s currency is
Multiple choice question.
inconvertible.
freely convertible.
nonconvertible.
externally convertible.
freely convertible.
The extent to which income from individual transactions is affected by fluctuations in foreign exchange values is known as transaction ______.
Multiple choice question.
forecasting
exchange
exposure
insurance
exposure
Two strategies that can be used to reduce translation and transaction exposure are:
Multiple select question.
legal strategy.
lag strategy.
lead strategy.
labor strategy.
lag strategy.
lead strategy.
Company A is based in Europe and does a large amount of business in the United States. The company fears that the euro will gain in strength against the dollar, so it sets up a local production facility in the United States. This is a way to reduce ______ exposure.
Multiple choice question.
political
economic
translation
transaction
economic
Which type of control of exposure is MOST effective at protecting resources efficiently and ensuring that each subunit adopts the correct mix of tactics and strategies?
Multiple choice question.
Bottom-up
Decentralized
Centralized
Formalized
Centralized
Which of the following is most likely if the United States-Mexico-Canada Agreement (USMCA) is approved in member countries?
Automakers will circumvent the high local content requirements by exporting finished vehicles from China.
U.S. consumers will face higher prices but Canadian consumers will see prices drop.
U.S. autoworkers will see substantially lower wages, while wages in Mexico will rise.
U.S. automakers will have to source more inputs within the bloc for vehicles to qualify as tariff-free.
Automakers will offset higher wages within the bloc by buying more inputs from South Korea and China.
U.S. automakers will have to source more inputs within the bloc for vehicles to qualify as tariff-free.
If it is approved by legislators in member countries, the United States-Mexico-Canada Agreement (USMCA) will replace the existing North American Free Trade Agreement (NAFTA). Which level of regional economic integration best describes NAFTA?
Multiple Choice
trade union
customs union
economic union
common market
free trade area
free trade area
In its current state, the European Union (EU) can best be characterized as being at which level of economic integration?
Multiple Choice
common market
economic union
customs union
political union
free trade area
political union
United States President Donald Trump claimed that this agreement did not benefit all members equally. He threatened to pull the United States out if more favorable terms were not reached.
NAFTA
This group signed a free trade agreement with China that removes tariffs on 90% of traded goods.
ASEAN
In 2016 Venezuela was suspended for violating this pact’s democratic principles and engaging in widespread human rights violations.
MERCOSAUR
Recession troubles in 1998 led to greater downfall of this agreement.
MERCOSAUR
Customs Union
ANDEAN COMMUNITY
Council of Ministers is composed of government ministers from each member.
EU
There has been limited progress to foster free trade under this agreement.
ASEAN
Includes France and Germany
EU
Opposition to this agreement believed there would be a mass exodus of jobs from the United States and Canada into Mexico.
NAFTA
A signed agreement in 1969 was based on the EU model.
ANDEAN COMMUNITY
An updated version of an existing trade agreement that includes new provisions for local content requirements for automakers and more open dairy trade.
USMCA
The terms of the agreement will require minimum wages for auto workers in one bloc-member country to triple.
USMCA
Far less successful than the UE, it had all but collapsed in the 1980s. Some growth was seen after adoption of free market economic policies. Negotiations on the creation of a free trade area are proceeding at a very slow pace.
ANDEAN COMMUNITY
Agreement ratified by all three countries and went into effect January 1, 1994.
NAFTA
Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic are at the core with an invitation for the United States for bilateral talks.
CAFTA
Paraguay and Uruguay became members in March 1990, and in 2006, Venezuela joined but has yet to be fully integrated.
MERCOSAUR
- Environmental and job loss fears did not materialize.
NAFTA
Venezuela joined at one point but has since withdrawn.
ANDEAN COMMUNITY
After an earlier attempt failed following a war between two participants, a new impetus came in 2003 when the United States signaled its intention to enter into bilateral trade negotiations with the group.
CAFTA
Trade between the four core members quadrupled between 1990 and 1998, but recession created major problems.
MERCOSAUR
Raises threshold for automakers to qualify for zero tariffs. Under agreement, automakers must produce 75% (up from 62.5%) of a vehicle’s content in North America.
USMCA
A new agreement reached in 2020 to replace an existing agreement between the same countries.
USMCA
United States imports cheaper textiles from Mexico because Mexico belongs to United States-Mexico-Canada Agreement (USMCA).
TRADE CREATION OR DIVERSION
Trade creation
Canada imports computer chips from the United States (a USMCA partner), even though China exports them at a cheaper rate.
TRADE CREATION OR DIVERSION
Trade diversion
Chile imports cocoa from Mexico. It then enters the Andean Pact and changes its cocoa imports to Colombia (and Andean Pact member).
TRADE CREATION OR DIVERSION
TRADE DIVERSION
United States imports sugar from Canada and not Mexico even though both countries belong to USMCA.
TRADE CREATION OR DIVERSION
Trade creation
France imports solar panels from Spain (an EU partner) even though Australia offers a better price.
TRADE CREATION OR DIVERSION
trade diversion
